Article on working capital management approach and which one is best in hospital industry

Working capital management is an important aspect of any business, and it is especially important in the hospital industry. Hospitals must have sufficient working capital to pay bills, purchase supplies, and provide care to patients. Without adequate working capital, hospitals may not be able to adequately serve patients and may be forced to close. 

There are several different approaches to working capital management, and each hospital should choose the approach that best fits their needs. The goal of any approach is to ensure that the hospital has enough funds to cover its current expenses without depleting its future resources. 

One approach to managing working capital is to maintain a fixed pool of capital. This approach requires the hospital to set aside a certain amount of money in the form of cash or other liquid assets to cover its current expenses. This approach works best for hospitals that have a predictable level of expenses and cash flow. The downside to this approach is that it can be difficult to adjust the amount of capital in the pool if expenses or cash flow changes. 

Another approach to working capital management is to use a ratio-based approach. This approach requires the hospital to maintain a certain ratio of current assets to current liabilities. The ratio is usually set based on the hospital's cash flow and expenses.This approach allows the hospital to be more flexible in its use of working capital, as it can adjust the ratio based on changes in expenses and cash flow. However, it can be more difficult to determine the appropriate ratio for a hospital, as it requires forecasting and analysis of the hospital's financial performance.

A third approach to working capital management is to use a cash flow forecast. This approach involves forecasting the hospital's future cash needs and then taking action to ensure that sufficient funds are available to meet those needs. This approach can be more proactive and allows the hospital to anticipate and prepare for changes in expenses and cash flow. However, it can be more time-consuming and may require the hospital to have strong financial forecasting capabilities.

Regardless of the approach used, it is important for hospitals to monitor their working capital and make adjustments as needed to ensure that they have sufficient funds to meet their current expenses and provide the best possible care to their patients.

Ahsan Tariq
Department of Management Science 
Preston University